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New Labour Code: How House Rent Allowance Changes Could Impact Your Rent vs Buy Property Decision

  • by- Grihik
  • Apr 9, 2026
The new labour code may reshape salary structures and influence a key life decision: whether salaried professionals choose to rent or buy a home.
New Labour Code: How House Rent Allowance Changes Could Impact Your Rent vs Buy Property Decision

New Delhi, April 9: At the heart of this shift lies a seemingly technical change: the redefinition of wages.

Key Changes Under the New Labour Code

  • Basic pay must constitute at least 50% of total compensation

  • Allowances (including HRA) are compressed

  • Provident Fund contributions increase, reducing immediate take-home pay

  • HRA tax exemption reduces, as it is linked to salary and rent parameters

Impact on Take-Home Salary

Ruchika Bhagat, MD of Neeraj Bhagat and Co, said: "Provident Fund contributions increase, reducing immediate take-home pay. For middle- to high-income earners, this translates into a subtle but meaningful erosion of tax efficiency. The result: renting is no longer as tax-friendly as it once was."

Debjani Aich, Partner at CMS INDUSLAW, said: "As HRA is part of the allowances that need to be limited to within 50% of the CTC, there may be possible CTC restructuring by employers to reduce the percentage of HRA in the CTC. This will directly compress the tax-efficient HRA benefit across salary brackets."

Rent vs Buy Equation

For years, a generous HRA exemption often made renting financially attractive. That equation is now shifting.

Bhagat said: "With reduced HRA benefits, the effective cost of renting increases. At the same time, tax benefits on home loans (up to ₹2 lakh on interest and ₹1.5 lakh on principal repayment) remain unchanged. This makes home ownership relatively more appealing from a tax perspective."

When Buying Starts Making Sense

Buying a home becomes financially viable when:

  • Rent exceeds 25–30% of income (outflow significant without building equity)

  • Expected stay horizon extends beyond 7–10 years (allows costs to even out)

  • Low rental yield cities (Mumbai, Delhi) – purchasing becomes stronger decision earlier

The Bigger Financial Picture

Bhagat said: "Renting offers flexibility, liquidity, and freedom from long-term debt, advantages that are especially valuable for young professionals or those with dynamic careers. Buying, on the other hand, enforces disciplined savings and builds a tangible asset over time."

The Bottom Line

Aich added: "In a lower-HRA regime, renting is a more efficient structure for individuals who require higher liquidity and related flexibility of income. Buying a home works more efficiently for long-term capital creation over immediate tax benefits, especially in cases where the individual looks at building equity over liquidity."